By Matt Underwood Visa and Mastercard’s proposed $38 billion settlement over swipe fees is stirring up a lot of controversy, and for good reason. It’s easy to see how this deal, while potentially lowering some costs, might actually end up hurting consumers and small businesses. It feels like a complex dance where the big players – the banks and payment networks – are trying to protect their own interests, leaving merchants and regular folks to pick up the slack.
A key issue highlighted is the tiered system of credit cards. Most credit cards issued these days are premium cards – think Visa Signature or World Elite Mastercard. The settlement, in theory, aims to lower costs for merchants by reducing fees on basic cards. But in reality, it could allow merchants to refuse higher-tier cards. The banks have cleverly pushed consumers towards these higher-tier cards, which come with increased interchange fees for merchants. This is a business model where banks profit, regardless of consumer benefit. Many premium cards have already seen a reduction in traditional benefits, such as insurance, while costs continue to rise.
The core concern is the potential for merchants to dictate which credit cards they accept. It leads to confusion and potentially excludes some consumers. Furthermore, if merchants are given the ability to pass on the costs of higher-tier cards, it could lead to increased prices for everyone, a situation where the consumer ultimately funds the “rewards” programs they’re supposedly benefiting from. The fact that the deal has a five-year sunset clause is also suspect. Why isn’t a genuine win for consumers permanent? It raises the question of who this settlement is really designed to help.
The current system has created a situation where card payments are almost inescapable. The shift towards a cashless society has made cards a necessity for most people, and merchants are now largely dependent on them. This dependence gives Visa and Mastercard significant power, potentially allowing them to dictate terms. The idea of breaking up these companies to create more competition is worth exploring. Another possible solution is regulating interchange fees, similar to how sales taxes work, offering transparency in the pricing.
There’s also the question of alternative payment methods. The emergence of stablecoins and blockchain technology, with promises of instant settlement and zero transaction fees, suggests a potential future where the current credit card system becomes obsolete. These technologies could disrupt the established order and offer a more consumer-friendly alternative. However, even these systems are evolving.
The swipe fee issue also highlights the inherent cost of doing business in today’s world. Merchants absorb these fees, which can range significantly, and often pass them on to consumers through higher prices. The EU has much lower interchange fees, which begs the question of why the US market allows for such high costs.
The settlement’s complexity adds to the concerns. Forcing merchants to navigate a system where they have to decide which cards they’ll accept introduces a new layer of complexity to running a business. This potentially creates more friction for both merchants and consumers.
The core issue here is about control and cost. Visa and Mastercard have built a powerful duopoly, and their fees directly impact both merchants and consumers. This settlement might offer a limited reduction in fees for some, but it could also create new challenges, such as merchants refusing higher-tier cards, and increasing prices.